II 

114TH CONGRESS 

1ST SESSION S. 1102 

To provide for institutional risk-sharing in the Federal student loan programs. 

IN THE SENATE OF THE UNITED STATES 

APRIL 27, 2015 

Mr. REED (for himself, Ms. WARREN, Mr. DURBIN, and Mr. MURPHY) introduced the following bill; which was read twice and referred to the Committee on Health, Education, Labor, and Pensions 

A BILL 

To provide for institutional risk-sharing in the Federal 

student loan programs. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Protect Student Bor5 rowers Act of 2015’’. 

6 SEC. 2. PURPOSE. 

7 The purpose of this Act is to protect student bor8 rowers by requiring institutions of higher education to as9 sume some of the risk of default for student loans under 


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1 part D of title IV of the Higher Education Act of 1965 

2 (20 U.S.C. 1087a et seq.). 

3 SEC. 3. INSTITUTIONAL REBATES TO THE DEPARTMENT OF 

4 EDUCATION FOR DEFAULTED LOANS. 

5 Section 454 of the Higher Education Act of 1964 (20 

6 U.S.C. 1087d) is amended— 

7 (1) in subsection (a)— 

8 (A) in paragraph (5), by striking ‘‘and’’ 

9 after the semicolon; 

10 (B) in paragraph (6), by striking the pe11 riod at the end and inserting ‘‘; and’’; and 

12 (C) by adding at the end the following: 

13 ‘‘(7) provide that the institution accepts the in14 stitutional risk-sharing requirements under sub15 section (d), if applicable.’’; and 

16 (2) by adding at the end the following: 

17 ‘‘(d) INSTITUTIONAL RISK-SHARING FOR STUDENT

18 LOAN DEFAULTS.— 

19 ‘‘(1) IN GENERAL.—Subject to paragraph (3), 

20 each institution of higher education participating in 

21 the direct student loan program under this part for 

22 a fiscal year that has a rate of participation in such 

23 program for all students enrolled at that institution 

24 for such fiscal year that is 25 percent or higher shall 

25 remit, at such times as the Secretary may specify, 


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1 a risk-sharing payment based on a percentage of the 

2 volume of student loans under this part that are in 

3 default, as determined under paragraph (2). 

4 ‘‘(2) DETERMINATION OF RISK-SHARING PAY5 MENTS.—Subject to paragraph (3), with respect to 

6 each fiscal year, an institution of higher education 

7 described in paragraph (1) that has a cohort default 

8 rate (as defined in section 435(m))— 

9 ‘‘(A) that is 30 percent or higher for the 

10 most recent fiscal year for which data are avail11 able, shall pay to the Secretary for the fiscal 

12 year an amount that is equal to 20 percent of 

13 the total amount (including interest and collec14 tion fees) of loans made under this part to stu15 dents who are in default for such most recent 

16 fiscal year for which data are available; 

17 ‘‘(B) that is lower than 30 percent but not 

18 lower than 25 percent for the most recent fiscal 

19 year for which data are available, shall pay to 

20 the Secretary for the fiscal year an amount that 

21 is equal to 15 percent of the total amount (in22 cluding interest and collection fees) of loans 

23 made under this part to students who are in de24 fault for such most recent fiscal year for which 

25 data are available; 


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1 ‘‘(C) that is lower than 25 percent but not 

2 lower than 20 percent for the most recent fiscal 

3 year for which data are available, shall pay to 

4 the Secretary for the fiscal year an amount that 

5 is equal to 10 percent of the total amount (in6 cluding interest and collection fees) of loans 

7 made under this part to students who are in de8 fault for such most recent fiscal year for which 

9 data are available; and 

10 ‘‘(D) that is lower than 20 percent but not 

11 lower than 15 percent for the most recent fiscal 

12 year for which data are available, shall pay to 

13 the Secretary for the fiscal year an amount that 

14 is equal to 5 percent of the total amount (in15 cluding interest and collection fees) of loans 

16 made under this part to students who are in de17 fault for such most recent fiscal year for which 

18 data are available. 

19 ‘‘(3) WAIVER AND REDUCED RISK-SHARING

20 PAYMENTS.— 

21 ‘‘(A) WAIVER.—The Secretary shall waive 

22 the risk-sharing payments described in para23 graph (1) for an institution described in para24 graph (2)(D) that meets the requirements of 

25 subparagraph (D). 


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1 ‘‘(B) REDUCED RISK-SHARING PAY2 MENTS.—If an institution has in place a stu3 dent loan management plan described in sub4 paragraph (D) that is approved by the Sec5 retary, the Secretary shall reduce the total an6 nual amount of risk-sharing payments as fol7 lows: 

8 ‘‘(i) With respect to an institution 

9 with a cohort default rate described in 

10 paragraph (2)(A), the risk-sharing pay11 ment shall be in an amount that is equal 

12 to 15 percent of the total amount (includ13 ing interest and collection fees) of loans 

14 made under this part to students who are 

15 in default. 

16 ‘‘(ii) With respect to an institution 

17 with a cohort default rate described in 

18 paragraph (2)(B), the risk-sharing pay19 ment shall be in an amount that is equal 

20 to 10 percent of the total amount (includ21 ing interest and collection fees) of loans 

22 made under this part to students who are 

23 in default. 

24 ‘‘(iii) With respect to an institution 

25 with a cohort default rate described in 


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1 paragraph (2)(C), the risk-sharing pay2 ment shall be in an amount that is equal 

3 to 5 percent of the total amount (including 

4 interest and collection fees) of loans made 

5 under this part to students who are in de6 fault. 

7 ‘‘(C) CONTINUATION OF WAIVER OR RE8 DUCED PAYMENTS.—An institution that re9 ceives a waiver under subparagraph (A) or a re10 duced risk-sharing payment under subpara11 graph (B) may receive a waiver or reduced pay12 ment for a subsequent fiscal year only if the 

13 Secretary determines that the institution is 

14 making satisfactory progress in carrying out the 

15 student loan management plan described in 

16 subparagraph (D), including evidence of the ef17 fectiveness of the individualized financial aid 

18 counseling for students. 

19 ‘‘(D) STUDENT LOAN MANAGEMENT

20 PLAN.—An institution that seeks a waiver or 

21 reduction of its risk-sharing payment, shall de22 velop and carry out a student loan management 

23 plan that shall include an analysis of the risk 

24 factors correlated with higher student loan de25 faults that are present at the institution and 


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1 actions that the institution will take to address 

2 such factors. Such plan shall include individual3 ized financial aid counseling for students and 

4 strategies to minimize student loan default and 

5 delinquency. 

6 ‘‘(E) WAIVER OR REDUCTION FOR CER7 TAIN INSTITUTIONS.—In addition to the other 

8 risk-sharing payment waivers and reductions 

9 described in this paragraph, the Secretary may 

10 waive or reduce risk-sharing payments if— 

11 ‘‘(i) an institution is eligible under— 

12 ‘‘(I) part A or part B of title III; 

13 or 

14 ‘‘(II) title V; and 

15 ‘‘(ii) the Secretary determines that— 

16 ‘‘(I) the institution is making 

17 satisfactory progress in carrying out 

18 the institution’s student loan manage19 ment plan described under subpara20 graph (D); and 

21 ‘‘(II) granting a waiver or reduc22 tion of risk-sharing payments would 

23 be in the best interest of students at 

24 the institution. 


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1 ‘‘(4) PROHIBITION.—An institution of higher 

2 education shall not deny admission or financial aid 

3 to a student based on a perception that such student 

4 may be at risk for defaulting on a loan made under 

5 this part. 

6 ‘‘(5) FUND FOR THE DEPOSIT OF RISK-SHAR7 ING PAYMENTS.— 

8 ‘‘(A) IN GENERAL.—There is established in 

9 the Treasury of the United States a separate 

10 account for the deposit of risk-sharing pay11 ments collected under this subsection. The Sec12 retary shall deposit any payments collected pur13 suant to this subsection into such fund. 

14 ‘‘(B) USE OF FUNDS.—Of the amounts in 

15 the fund described in subparagraph (A), for 

16 each fiscal year— 

17 ‘‘(i) not more than 50 percent of such 

18 amounts shall be made available to the 

19 Secretary to enter into contracts or cooper20 ative agreements for delinquency and de21 fault prevention or rehabilitation under 

22 section 456(d); and 

23 ‘‘(ii) the Secretary shall reserve the 

24 remainder of such amounts for a Federal 

25 Pell Grant fund that shall be used to offset 


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1 any future shortfalls in funding under the 

2 Federal Pell Grant program. 

3 ‘‘(6) APPLICABILITY.—The Secretary shall 

4 carry out this subsection beginning with the cohort 

5 default rate for the 2014 cohort. The 2014 cohort 

6 shall include current and former students who enter 

7 repayment in fiscal year 2014. 

8 ‘‘(7) REPORT TO CONGRESS.—The Secretary 

9 shall report on an annual basis to the Committee on 

10 Health, Education, Labor, and Pensions of the Sen11 ate and the Committee on Education and the Work12 force of the House of Representatives the following 

13 information: 

14 ‘‘(A) A list of institutions that have been 

15 subject to risk-sharing payments in the previous 

16 year. 

17 ‘‘(B) The required risk-sharing payment 

18 from such institutions. 

19 ‘‘(C) The amount of risk-sharing payments 

20 collected from such institutions. 

21 ‘‘(D) A list of the institutions that have re22 ceived waivers from the risk-sharing payment 

23 and the reason for such waiver. 


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1 ‘‘(E) A list of the institutions that have re2 ceived reductions in the required risk-sharing 

3 payment. 

4 ‘‘(F) The use of funds deposited from risk5 sharing payments, including a list of any con6 tracts or cooperative agreements for delin7 quency and default prevention or rehabilitation 

8 and the amount reserved for the Federal Pell 

9 Grant program.’’. 

10 SEC. 4. CONTRACTS AND COOPERATIVE AGREEMENTS. 

11 Section 456 of the Higher Education Act of 1965 (20 

12 U.S.C. 1087f) is amended by adding at the end the fol13 lowing: 

14 ‘‘(d) CONTRACTS AND COOPERATIVE AGREEMENTS

15 FOR DELINQUENCY AND DEFAULT PREVENTION AND FOR

16 DEFAULT REHABILITATION.—The Secretary may enter 

17 into contracts or cooperative agreements for— 

18 ‘‘(1) statewide or institutionally based programs 

19 for the prevention of Federal student loan delin20 quency and default at institutions of higher edu21 cation that— 

22 ‘‘(A) have a high cohort default rate as de23 fined under section 435(m); or 

24 ‘‘(B) serve large numbers or percentages of 

25 student loan borrowers who have a risk factor 


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1 associated with higher default rates on Federal 

2 student loans under this title, such as coming 

3 from a low-income family, being a first genera4 tion postsecondary education student, not hav5 ing a secondary school diploma, or having pre6 viously defaulted on, and rehabilitated, a loan 

7 made under this title; and 

8 ‘‘(2) increasing the number of borrowers who 

9 successfully rehabilitate defaulted loans.’’. 

10 SEC. 5. FINANCIAL RESPONSIBILITY. 

11 Section 498(c)(1) of the Higher Education Act of 

12 1965 (20 U.S.C. 1099c(c)(1)) is amended by striking sub13 paragraph (C) and inserting the following: 

14 ‘‘(C) to meet all of its financial obligations, 

15 including institutional risk-sharing payments, 

16 refunds of institutional charges, and repay17 ments to the Secretary for liabilities and debts 

18 incurred in programs administered by the Sec19 retary.’’. 

Æ 


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